Tuesday, 22 April 2014

Legal Novels you must read

Over a decade ago, I read an amazing legal novel, dealing with murder, mystery and court case. It was a huge book and I had a flight to catch at dawn, but I just couldn't bring myself to put down that book. I sat through the day, finished the book at 0300 and dressed up to catch that taxi!
Since then, I have managed to read only a handful of legal novels that I really enjoyed.
  1. The Thirteenth Juror by John Lescroart
  2. The Firm by John Grisham
  3. The Client by John Grisham
  4. The Runaway Jury by John Grisham
The Thirteenth Juror
This is one of the Dismas Hardy books and the first novel I read belonging to this genre. Unlike most legal novels, this one provides greater coverage of the courtroom drama that is required in such novels. This is what distinguishes a legal novel from other fiction novels, and I feel, authors should try to take advantage of this. As far as this book goes, we have the protagonist Dismas Hardy defending multiple homicide charges against a wife. The prosecution claims that she has murdered her husband and her 8-year old son. This book is loaded on twists, suspense, sentiment and legal drama. When reading such books, one is usually able to root for the innocent or determine the innocent/guilty too - that is certainly not possible in this book. The reader's dilemma in this book extends right to the end and that is truly exhilarating.

The Firm
Strictly speaking, this wouldn't classify as a legal novel(most Grisham books don't, I feel), but it just has to do with a bunch of lawyers in a legal firm. This is more of a thriller/suspense and action kind of book, with some really strange happenings at the firm. A college graduate, Mitch, has offers from the top firms in New York, Chicago etc. but decides to join a small tax firm in Memphis (offers loads of cash/perks). The accidental deaths of multiple lawyers working at the firm has him unsettled and this is where things begin to heat up. Suffice to say, once you have reached this stage, you definitely won't put down the book. There is a great deal of lying, deceit, planning, killing, running etc in this book. It does seem a bit far-fetched when you are done with it, but it's entertaining nonetheless. This is a good one-time read book.

The Client
This book is about a kid who witnesses a suicide and gets caught up in a whole jungle of affairs regarding the dead man's problems. If you've heard the idiom "dead men tell no tales", it certainly does not apply here. With the kid's life at risk, and multiple parties(good and bad) wanting to talk to him about the dead man, he hires himself a lawyer with $1 (what a nice lawyer!). From here on out, it's a wonderful read. That kid is smart, very very smart. With a keen understanding of life and the people around him, the decisions he makes are simply astonishing. This is truly a remarkable read, with a little bit of legal stuff thrown in from time to time.

The Runaway Jury
Grisham aptly explains the manner in which lawyers(their advisers really) obtain information on the jury candidates, to filter them out and pick the perfect jury for their case. The book starts off with a major case for which the jury is picked and this process is covered in sufficient detail. What makes this book worthwhile - in spite of all that research into the jury candidates, among the jury members picked, there is one person who has hidden motives to swing the verdict in a particular direction. Once the lawyers get a whiff of this intent, book explodes with entertainment. This is definitely a worthwhile read. Although it's a little slow to build up and progress, the satisfaction you obtain when the secrets unfold is immense.

FYI, for all the Grisham books listed above, a movie has been released.
As for the books in this genre currently on my reading list, I don't plan on reading any more Grisham. His books don't truly qualify for the legal novel genre(they are excellent thrillers nonetheless) I enjoyed in The 13th Juror. I'll look forward to reading "To Kill a Mockingbird, by Harper Lee"(highest rated novel in this genre) and the other Dismas Hardy books by John Lescroart next.

Sunday, 13 April 2014

Portfolio Analysis - April 2014

It is extremely important to have the ideal portfolio, one that matches the risk-reward ratio appropriately. This matching would be dependent on your age, your ability and preference to bear risks, risk or reward probabilities for other investments etc.
One's portfolio should have a proper balance between risk-free investments, low-risk/low-return and high-risk/high-return investments. This balance will naturally change over time. As one ages and approaches the retirement age, the portfolio will move from high-risk towards low-risk.

In this regard, I intend to periodically(most likely on a quarterly basis) record my portfolio standing. This will help me out in several ways:

  1. Identify the risk-reward balance for the portfolio at a given point in time and modify it accordingly.
  2. Identify the portion of savings allocated to the different investment types and correct that allocation over time.
  3. Monitor the growth of the investments over time and restructure if needed.

Figure 1: Asset allocation including Real Estate(RE) investment through loan

I purchased a flat at a very early stage of life(I'm nearly 24 years old) and this has skewed my portfolio heavily towards that investment. I have provided an asset allocation excluding the RE investment as well, but that's below. Let's take a look at this one first.
  • The High Risk investment comprises of the Equity and Receivables(money lent to others) components.
  • The Low Risk investment comprises of the balance in the Savings bank account as well as the Deposits(a few Recurring Deposits(RDs)).
  • The Risk Free investment comprises of the RE and PF(PPF and EPF contributions) components.
  • Change is currently recorded as 0. This value will get updated when the next period's analysis is done.
  • Analysis - As is obvious, considering the age factor and the ability to bear risk, the High Risk component is much lower than it should be. I feel that it should at least have 60% allocation of total investments. The remaining 40% can be divided between Low Risk and Risk Free investments. That said, I don't think that may be possible(certainly not in the near future) due to the heavy contribution from RE.

Figure 2: Asset allocation excluding Real Estate(RE) investment

Now, let's take a look at the asset allocation if we exclude the RE investment.

  • Analysis - The Low Risk and Risk Free components together account for about 65% of the total portfolio assets. This kind of a distribution is suitable for someone around the age of 50! In spite of removing RE from the calculation, the charts show that the portfolio is not designed as it should be.
  • The low allocation in High Risk is not because I can't handle the risk, it's because the portfolio is not designed correctly. It requires restructuring to amplify potential returns(at the cost of increased risk, which I can bear).
  • Since Equity is the only High Risk favourable investment(hate the idea of Receivables increasing) and the PF contribution is already quite high, every opportunity I get to deploy surplus funds should be two purposes - Savings(to meet Emergency Fund requirements, more on that here) and Equity(increasing potential returns). Another challenge is that, every month, a fixed amount from my income is earmarked for PF(EPF) by the company, so I'd have to trump that amount to alter the current portfolio allocation - no easy task considering the EMI I pay for the RE.

Figure 3: Equity Portfolio

Since Equity investment is a critical component of my future investments aimed towards obtaining a well-structured portfolio, I felt it would be a good idea to monitor the Equity Portfolio as well and tailor it to meet my requirements.

  • The Defensives include SUNPHARMA and ITC.
  • Risky bets includes FSL and GAYAPROJ.
  • Growth includes HCLTECH, L&T and SBIN.
  • NIFTY is the EOD index value (for Nifty) against which we will compare the portfolio. We will also record the equity net worth change over time.
  • Newly Added funds refers to the funds added between the two periods that we compare the portfolio. Deployable funds refers to the funds that is earmarked for equity investment but is currently held in cash with the brokerage firm.
  • Analysis - As I see it, Defensives allocation is quite high. Any funds that need to be deployed ahead should be put in Growth or Risky bets. I feel that not more than 20% of the portfolio should be held in Risky bets(I've often had ill luck with these). Besides if the Growth stocks net substantial returns, then there won't be a need to over-expose the portfolio to the Risky bets.
  • Strictly speaking, I am a long-term investor and seldom do I attempt short-term trades to book quick profits. So I anticipate we'll see low returns in the near future, but over a period of time, the returns should be decent enough(if fortune favours me). However, that is for the future, let's just see how things move from here.
  • I don't like to hold portfolios with a lot of stocks since they don't really help with risk reduction through diversification beyond a certain point. I am not saying I know what that magic number is, but I tend to draw the line at 6 to 8 stocks, considering that the absolute amounts I am investing are not very high. Guess I'll just have to learn with time and find this magic number out myself.

Well, it is obvious that this portfolio needs a lot of work! Until I started this exercise, I never imagined that my portfolio would be so biased towards Low-Risk investments. I probably knew it, but just didn't want to accept it. Charting the portfolio and writing this down definitely helped. I suggest everyone should maintain a track record of their investments to ensure that the portfolio is structured the way it is meant to be(or required to be) structured.

Do let me know your thoughts and suggestions.

Are you Financially Sexy?

I came across this post which spoke about being "Financially Sexy" and immediately liked it. Thought I'd share the gist with you guys, while adding my opinions to it.

It's not that someone who earns a lot or has a lot of luxuries at his disposal is financially sexy, as the myth is, because we all know the numerous rich people who have applied for bankruptcy, or gambled away their riches. So what is financial sexiness and how do you achieve it? Well, there are certain criteria that you have to meet in order to become financially sexy.

  • High Credit Score
It is vital that you have a very high credit score, preferably more than 85% of the maximum score. If the score is calculated up to a scale of 1000, your score should be above 850. With a high score, not only is it easier to get a loan, but you get them at lower interest rates too.
I haven't run my score yet, gotta put it on the agenda and get it done as well.
  • Savings >= 15% of  Gross Income
This is a critical measure that very few people realise. The general tendency is to consume during the month and the leftovers are the savings. I prefer to set aside 15% of the income at the start of the month and the remaining can be made available for consumption. If there are leftover funds at the end of the month, they can be added to the savings as well. This is especially essential since the American consumerism has spread all over the world and credit cards have became a necessity for some, rather than a convenience. The next measure highlights this as well.
I generally save about 15% of my income every month, unless some unexpected large expenses come by. But I'd like to save some more, and increase my investment pool now.
  • Credit card utilization at 35%
People tend to utilize the entire credit limit that is available to them, which is a risky proposition and would be avoided by a financially sexy person. One should try to utilize not more than 50% of the credit card limit, and a financially sexy person would limit this to 35%. This not only reduces the risk on the credit, but also boosts the credit score.
Fortunately, I don't have a credit card. But I don't see myself exceeding the 35% threshold even if I do get one in the future.
  • Healthy Emergency Fund
I strongly suggest that one should have at least 3 months of living expenses worth of liquid funds stashed aside for emergencies. I am aiming at 6 months of living expenses to cover me, because you never know how the tables might turn on your fortune. The simplest example that comes to mind is the recession of 2008.
I did have a good fund until a few months back which unfortunately got used up to meet some investment needs. That was wrong on my part and I am already working on getting that fixed. I have about a month's worth of savings in emergency funds, which I'll increase to six months at the earliest and hold it there.
  • Debt to income of 35% or less
This ratio represents the amount of debt you owe to the amount of income you earn on a monthly basis. The 35% figure is sufficient to give you some flexibility with your future choices, should you opt for anything different. But a lower ratio would certainly be preferable. The lower ratio also provides the added benefit of obtaining additional loans with comparable ease.
I do have a pretty high debt, about 50% of my income, in the form of home loans. Over a year or two, hopefully, I will be able to bring it down to 35%.
  • Portfolio with appropriate risk-reward relationship
This is a pretty debatable topic because it depends on individual financial conditions. What I am trying to put across here is that you should not only be comfortable with your portfolio allocation, but should also be right about it. For example, a person aged 60 should not have a greater chunk of his portfolio in high risk investments - on account of his retirement, he should preferably have a steady source of income from pension accounts, or rental incomes or any other source of steady income that is not susceptible to drastic losses unexpectedly. More on portfolio allocation in a future post.

So, what do you think? Are you financially sexy or will you have to make some changes to fix up your financial situation? Do you think there are any additional criteria that should be considered here?

Friday, 4 April 2014

The Three Musketeers trilogy

Now who could possibly not have heard of or read "The Three Musketeers" by Alexandre Dumas! Reading this book in the school library was one of my favourite activities. So I decided to read it up once again, and to my surprise, found that it had sequels. I was compelled to write this blog after having read those sequels. In a word, they are brilliant!
The trilogy for the series is as follows:

  1. The Three Musketeers
  2. Twenty Years After
  3. The Vicomte of Bragelonne: Ten Years Later
The Three Musketeers
This book introduces us to the three famous musketeers, Athos, Porthos and Aramis. It is written from the perspective of the protagonist, D'Artagnan, who is aspiring to be a musketeer. I don't want to share any more than this since the description of the characters is really fun to read.
This book is loaded with friendship, adventure, chivalry, honour, action and timely shouts of "all for one, one for all". Rest assured, you'll be immersed in this book until you put it down.

Twenty Years After
This is a sequel to The Three Musketeers and follows the story of the musketeers 20 years after the events of the first book. This book doesn't live up to Dumas' work standards but it does well for a sequel. It acts as a good bridge between The Three Musketeers and The Vicomte of Bragelonne.

The Vicomte of Bragelonne
This is a truly a masterpiece. It is the largest book of the three, probably thrice as big as The Three Musketeers and thrice as enriching, at the very least. Dumas maintained an unusual writing style in this book, which he hadn't explored in either of the prequels, thus making it an exciting read. A good deal of the book has exploits driven by romantic needs and loyalty, and at times, a conflict between the two. We see politics, diplomacy, treachery and deceit at its fullest. This book truly is one of a kind.

It's a daunting task to read all those books at a stretch. I was tired by the time I was done with the third book. I suggest taking a break and reading some other book after completing a section or two of the final book. But, by no means, is this a trilogy that can be missed out on.